Is It Too Late in the Greek Debt Crisis?

European Union leaders have been meeting in Brussels in an attempt to reach an agreement in the Greek debt crisis.  A satisfactory resolution was not reached by June 30th and the Greek government didn’t make a $1.6 billion euro payment on their debt to the International Monetary Fund.  If the Greek government decides to not take the bailout offer based on the results from the referendum vote scheduled for July 5th and exits the European Union, could Greece be headed towards a humanitarian crisis or if the Greek government decides to meet the conditions of the bailout; could Greece still be headed for a humanitarian crisis as a result of the conditions of the bailout?

The Greek government is proposing a resolution that includes tax hikes with not as many spending cuts as European Union leaders would like.  The tax hikes that the Greek leaders are proposing could further weaken Greece’s economy and make it more vulnerable to a complete collapse if conditions are right in the future.  A collapsed Greek economy would be very bad for the rest of the European Union and increase the risk of large numbers of people living in Greece fleeing to the other European Union countries.  If the Greek people would flee to other European Union countries because of their economy’s collapse, it would put a strain on those countries economic and social welfare structures that are already being tested by refugees from war torn countries.

In order to get the $7.2 billion euro bailout that the country needs from the European Commission,  the European Central Bank, and the International Monetary Fund must reach an agreement with their creditors that, in the end, leads to Greece have a sustainable debt burden and not one that ultimately cripples the country.  Some of the items that the creditors want are cuts to pension payments or public sector wages, deeper spending cuts instead of tax increases, elimination of a special benefit paid to some low income pensioners, and a wider Value Added Tax base.

The items listed above by the creditors are achievable by the Greek government.  Short term cuts could be made to pension payments and agreements made that see the public sector workers, both men and women, retiring at 70 years old.  One solution that could be implemented is if a person retired within the last two years and they are below the age of 70, impose a 1% penalty.  If the retired person would be able to re-enter the workforce, then the pension could be put on hold until they reach the age of 70 without the 1% penalty.  Incentives need to be brought forth in an effort to try and get new businesses to open offices in Greece, bring the down the unemployment rates which are causing the pensions funds to run a big deficit, and get a large number of the early retirees back into the workforce and ease Greece’s pension burden.

A close look needs to be taken at the 580 professions that are classified as hazardous or strenuous enough to qualify for early retirement in Greece.  The 580 professions need to be shrunk down to a smaller number.  Policemen and firefighters should still qualify because the nature of their jobs.  Professions like wind instrument players, radio presenters, and hairdressers should really be examined as to whether or not their jobs are

really hazardous or strenuous enough to qualify for early retirement given the economic burden that it presents.

If a country has 49% of its people relying on pensions as the income and only 36% relying on salaries, there is a problem.  A country should more people relying on salaries for their income than people relying on pensions.  Eventually, this imbalance will cause a strain on the country’s economic because it has more people dependent on it and if not as many people are working and paying taxes; a source of revenue for the government will decrease.

The Greek government must look at ways to achieve deeper spending cuts instead of burdening its people with higher taxes.  Are there more cuts that could be made to services that are not essential everyday services?  For example, services that mainly benefit the tourism industry.  The Greek government needs to make sure that essential services are funded and the people’s basic human needs are met when looking at areas that could be cut.

The elimination of the EKAS, a variable special payment made to nearly 200,000 low income pensioners, is something that Greece’s creditors want to happen.  The special payment brings the monthly amount of the pensioners who receive it to $700 euros.  Could some of the low income pensioners that receive this benefit be reintegrated back into the workforce so that the EKAS could be cut instead of eliminated right now? The Greek government and its creditors could look at ways to slowly phase out the EKAS.  One way could be special retirement savings programs aimed at the professions that traditionally have low paying pensions.  People in the professions with low paying pensions could be offered incentives to retire at a later age instead of at the age of 55.

The issue of a wider Value Added Tax base on electricity, medicines, hotels, and restaurants could help Greece generate revenue that it needs to help pay its creditors but it must be approached carefully.  An tax on electricity could be raised to 18% which is a 5% increase instead of the 10% that is wanted by creditors.  If taxes were increased on medicines, it may push the price of them out of reach for the people that need them the most.  If the medicines are priced out of reach of the people who need them the most, it could accelerate the start of a humanitarian crisis in Greece.  The taxes could be raised on hotels and restaurants because tourists would be affected the most instead of the Greek people.

These are some ways that Greece can try and meet the creditors conditions for another monetary bailout and possibly avoid a humanitarian crisis that would impact the European Union negatively.  These possible ways in which Greece could meet the conditions that have been set forth to receive the bailout would still be difficult on the Greek people.
In future posts, I will look at the impact of a humanitarian crisis in Greece would have on the European Union, the consequences of Greece leaving the European Union and going back to its own currency, and the potential impact on the European Union if Greece’s economy collapses.

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